Correlation Between IShares MSCI and SPDR MSCI

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and SPDR MSCI at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares MSCI and SPDR MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares MSCI USA and SPDR MSCI World, you can compare the effects of market volatilities on IShares MSCI and SPDR MSCI and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares MSCI with a short position of SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and SPDR MSCI.

Diversification Opportunities for IShares MSCI and SPDR MSCI

0.48

Correlation Coefficient

IShares MSCI  SPDR MSCI

Very weak diversification

The 3 months correlation between IShares and SPDR is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and SPDR MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI World and IShares MSCI is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares MSCI USA are associated (or correlated) with SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI World has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR MSCI go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR MSCI

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 1.3 times more return on investment than SPDR MSCI. However, IShares MSCI is 1.3 times more volatile than SPDR MSCI World. It trades about 0.11 of its potential returns per unit of risk. SPDR MSCI World is currently generating about 0.1 per unit of risk. If you would invest  7,951  in iShares MSCI USA on September 26, 2024 and sell it today you would earn a total of  4,500  from holding iShares MSCI USA or generate 56.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

iShares MSCI USA  vs.  SPDR MSCI World

iShares MSCI USA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR MSCI World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR MSCI World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, SPDR MSCI is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares MSCI and SPDR MSCI

The main advantage of trading using opposite IShares MSCI and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, SPDR MSCI can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SPDR MSCI will offset losses from the drop in SPDR MSCI's long position.

The idea behind iShares MSCI USA and SPDR MSCI World pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.